Preface. Oil is finite. Period. Don’t be fooled by news stories that peak oil is dead, or we have reached peak demand.  They’re all nonsense. Gail Tverberg at ourfiniteworld.com is especially good at explaining this.

Worse yet, what we have left has been and is not being drained as quickly as possible to pay the capital back, and that increases the amount of oil that will be left in the ground forever, which could have been produced with more responsible methods.  But the very nature of capitalism is profits now, not 10 years from now.

This article makes the case that there are lessons to be learned today from the gigantic 2001 giant Ladyfern natural gas reserves in Northeastern British Columbia.

But due to the tragedy of the commons, where too many companies exploited this reservoir too quickly, much less was produced than could have been.  Like shale gas today, a gigantic amount of production drove gas prices down, thanks to the “stupid” middle class money financing companies that were already bankrupt (the banks prefer to get some money rather than none, and besides, it’s not their money).  Whether the gas bubble will be as bad as the subprime mortgage crisis waits to be seen.

Initially Ladyfern was thought to have a trillion cubic feet of recoverable reserves, but in the end had 400-billion-cubic-feet (bcf).  Some of the “missing” 600 bcf that could have been obtained was lost to greedy drilling, though most of this was probably due to overestimating the size of the reserve.  I’ve cut and paraphrased much of the article below (select the link in the title to see the original article).

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

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Terry Etam. January 19, 2016. The Ladyfern legend: huge reserves, frenzied drilling, and no one made money. Sound familiar? BOE report.

Is shale oil and gas too good to be true? History provides examples of the dangers of getting too starry-eyed by banking on seemingly endless natural gas reservoirs.  The historical cautionary tale that follows usually involves a gold-rush mentality that results in efforts to extract the entire reservoir all at once!

As an example, consider the legendary Ladyfern field in British Columbia, and whose story has an ugly lesson worth remembering.

The Ladyfern field was a giant gas reservoir estimated to contain up to a trillion cubic feet of recoverable reserves. There were wells that produced at initial rates of 70 million cubic feet per day. It’s worth remembering that those rates were from vertical wells without 50 stage fracking technology. The cost of producing this conventional natural gas was very cheap. After the initial discovery, companies raced to buy up mineral rights in the area, and once secured, the race was on.

What happened next can be best described as a ‘tragedy of the commons’. Companies acting in their own self-interest harmed all parties. The Ladyfern reservoir saw corporate beasts devour a beautiful gas reservoir like wild pigs upending a garden.

The problem was competitive drainage. Because the Ladyfern reservoir was so porous and prolific, it was in a company’s best interest to drain their reserves as fast as possible or lose them to competitors. As noted in the linked article above, had one company owned all the mineral rights, the reservoir would most likely have been developed more cautiously, or at the very least with a plan. If the competitive drainage phenomena were to have been avoided, reserve recoveries would most certainly have been higher and with far less capital investment.

Maximizing recoveries from a reservoir should be the primary concern, not booming discovery wells that generate hysteria and a “shoot first, aim later” mentality.

This lesson should not be lost on shale gas drillers today now that the latest Utica production test results are bringing levels of excitement akin to the Ladyfern era.

While there are obvious differences in reservoir characteristics between shale formations and the Ladyfern, the mechanics and philosophy of ultimate recovery remain the same. In particular, in new fields or non-homogenous fields being explored and developed, paying attention to the overall field recovery should be one of the most important considerations. But this parameter can quite easily be forgotten by (or fail to even enter the minds of) executives under pressure to deliver production growth and/or meet quarterly expectations. What’s worse, with the current extreme duress in industry, pressure mounts to keep drilling wells and bringing them on to shore up reserve bases to keep bankers happy. While this strategy can serve as  a useful short term survival tactic, more often it equates to bad news in the long run. But on the other hand, it may be the only option for companies that are trying to stay alive until the next price spike.